Trading on Friday witnessed some of the most violent movements of the year, even though stock-market indexes barely budged at the close.
But if you look closely, an increase in volatility has led to a strange set of divergences in the major indexes. While I usually don’t follow the Dow Jones Industrial Average, it is worthwhile to look at today, as it is in a completely different place than the Nasdaq. The S&P 500, meanwhile, is somewhere in the middle.
The tech-heavy Nasdaq (below) looks the healthiest of the three benchmarks, even as it was rejected Friday near its previous high — it couldn’t break through.
The Dow Jones Industrial Average (below), on the other hand, looks completely broken — it cannot even lift itself over its 50-day moving average (15,248). This is one of the widest divergences I can remember between two major indexes.
Meanwhile, the S&P 500 was rejected at the 50-day moving average (1,655) Friday. Getting over mid-August highs in the 1,670s would stop the pattern of lower highs.
Most of the key monthly economic reports were released last week, and it was a mixed bag — the two ISMs (manufacturing and services sectors) were good, while employment disappointed. So now it appears investors are thinking the Federal Reserve will taper … but taper less than what was originally expected.
So the Fed’s policy meeting next week should produce more volatility than usual. As for this week, retail sales on Friday is the only key report with expectations of an increase (0.5% in August, with 0.3% excluding autos). Consumer sentiment and inflation readings will be published, though they will have less impact.
So we await a batch of mixed signals. Volatility is the one sure thing we can expect.